Blue-Chip Index Posts 15th Record Close of the Year

The Dow Jones Industrial Average charged to another record close on Wednesday, bolstered by upbeat corporate news and confidence that the Federal Reserve will keep interest rates low.

The Dow climbed 77.52 points, or 0.5%, to 17138.20, its 15th all-time high this year. The S&P 500 index rose 8.29 points, or 0.4%, to 1981.57, and the Nasdaq Composite Index gained 9.58 points, or 0.2%, to 4425.97.

Investors shifted their attention to U.S. corporate-earnings reports Wednesday, after choppy trading in recent sessions on statements from the Federal Reserve and worries about a Portuguese lender. Good news from overseas helped set a positive backdrop for U.S. trading. And a second day of testimony from Fed Chairwoman Janet Yellen reinforced the idea that the central bank will keep interest rates low for an extended period.

The U.S. second-quarter GDP increased at a 4.0% rate, well above expectations, raising hopes for sustained growth in the second half of 2014. WSJ's Polya Lesova joins Simon Constable on the News Hub with the details. Photo: Getty

"Until you see an increase in long-term interest rates...stocks will be the preferred asset class for investors," said James Abate, who manages $196 million in two funds for Centre Asset Management. "People don't have much of a choice but to remain invested in equities."

He said that continued low interest rates should spur more deals activity and share buybacks, both of which have helped support stock-market gains. He expects interest rates to remain low for some time and has kept a high exposure to U.S. and global stocks in the Centre Multi-Asset Real Return Fund.

Wednesday's gains were fueled by bullish trading in technology and energy stocks, said Jeffrey Yu, head of U.S. single-stock derivatives trading at
UBS AG
. But the rise also extended a rebound from the previous session's lows, he said. Stocks dropped Tuesday morning, as Ms. Yellen discussed signs of strength in the U.S. economy.

But since then, "she pretty much went as dovish as possible, given the economic backdrop, which has allowed the market to bounce back," said Mr. Yu.

International Business Machines
rose 2.1% on news it struck an agreement with
Apple
to create business apps and sell iPhones and iPads to IBM's business customers. Apple slipped 0.6%.

Energy stocks led the S&P 500 higher, with the sector up 1.6% as oil prices rebounded from recent declines. Crude-oil futures rose 1.2% to $101.20 a barrel, after settling below $100 for the first time since May on Tuesday.

Stocks of small-cap, social media and biotechnology companies extended their steep Tuesday drop. The Russell 2000 Index dropped 0.2%, and the Nasdaq Biotechnology Index lost 1.3%. A Fed report released Tuesday expressed concern about valuations in those corners of the market. The Nasdaq Biotech Index is trading at 44.8 times its expected earnings for the next year, compared with the S&P 500's 15.7, according to FactSet. As of the end of June, the Russell 2000 was trading at 20 times its forecast earnings, according to Russell Indexes.

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21st Century Fox bid to buy Time Warner for $85 a share, but Time Warner rejected the offer. WSJ's Chris Dieterich discusses with Simon Constable on the News Hub's Wednesday markets report. Photo: Getty

A few companies in those sectors could eventually justify their lofty valuations, said Jason Pride, director of investment strategy at Glenmede Trust Co., which oversees $25 billion. But his firm is steering clear.

"Anybody's ability to pick the winner in those situations is probably lower than he thinks it is," he said. "It tends to be a loser's game to do that."

A handful of reports on the U.S. economy also supported stocks. A better-than-expected report on the housing market helped boost home builder shares. And a measure of producer-price inflation came in slightly above expectations in June, rising 0.4% on the month, while a 0.3% rise was expected.

Continued news of deals gave a boost to benchmarks as well. Shares of
Time Warner Inc.
rallied 17% after
21st Century Fox
confirmed Wednesday it offered to buy Time Warner last month, but Time Warner rejected the proposal. Fox shares slipped 4.6%.